Bahnisch & Quiggin on IR changes (crossposted at LP)

Here’s a paper Mark Bahnisch and I have written on the government’s proposed IR changes, aimed at Online Opinion. We’ll try for a more complete analysis when we both get a bit more spare time. Comments appreciated. Crossposted here at LP
Justice Henry Higgins, the architect of the 1907 Harvester Decision of the Arbitration Court which enshrined the principle of a living wage, defined the scope of the Australian arbitration system as a â€œnew province for law and orderâ€?. Almost a century on, John Howard claims that industrial relations reform is â€œone of the great pieces of unfinished business in the structural transformation of the Australian economyâ€?. The great strikes of the 1890s demonstrated that a labour relations regime based on the law of master and servant was untenable as a matter of justice. Federation saw the entrenchment of Commonwealth powers to establish institutions to conciliate and arbitrate industrial disputes across state borders. The States followed suit with their own dispute settling and wage-fixation tribunals. Distinctive about the Australian arbitral model was its recognition of unions as bargaining parties with legal rights, and wage-fixation on national and industry levels through awards. Awards also comprehensively stipulated employment conditions. Over-award collective bargaining was commonplace particularly in industries with well-organised unions and tight labour markets. But overall, the system delivered high wages and employment security, and was supported by both the ALP and the Liberal Party and in general by employers.

Economic turbulence in the 1970s, and a shift in the labour share of GDP and increased bargaining power by unionised workers led to a backlash. For much of the 1980s, increases in wages arose primarily from annual national wage cases, in which the crucial determinant of the outcome was bargaining between the ACTU and the Hawke Labor government under successive versions of the Accord. As the Accord process came under strain in the late 1980s, individual unions sought to regain a more prominent role in wage bargaining, while policymakers sought to increase flexibility. The outcome was the system of enterprise bargaining, in which unions reached agreements with individual employers.

Reflecting the political compromise that led to the adoption of enterprise bargaining, unions focused on the bargaining aspect, while employers focused on flexibility and the opportunity to buy out restrictive award conditions. The election of the Howard government saw three key changes to industrial law. The vestiges of compulsory unionism were swept away, and unions kept on a very tight rein by the Office of the Employment Advocate, and an individual stream of bargaining â€“ Australian Workplace Agreements â€“ was introduced. Federal Awards were simplified to 20 allowable matters. One of the most significant changes was the removal of restrictions on casual employment, which led to an increasing casualisation of the service workforce. The actual take-up of AWAs by employers has not been impressive â€“ except in sectors such as the Federal public service and communications where government pressure played a major role, and in mining where the introduction of AWAs has been the culmination of a decade long de-unionisation campaign by major firms. The AIRC proved more interventionist than anticipated, continuing to set new employment standards through test cases (for instance, redundancy payments in small businesses which the government is keen to wind back). Overall, real wage rates and employment have improved under the Howard government, but with very patchy gains in some sectors, and a continuing rise in inequality. The improved bargaining position of employees as labour market participation increases and skill shortages bite is no doubt a motivating factor in businessâ€™ desire for further IR reform, a desire that can now be fulfilled with the Governmentâ€™s Senate majority.

Unlike the period leading up to the introduction of Enterprise Bargaining in 1991, there have been few sustained attempts to make the policy case for reform. The BCA embarked on a major research programme in the late 1980s with numerous studies arguing for deregulation. As David Peetz has argued, studies recently commissioned do not bear out the arguments for productivity which dominate the rhetoric of the Government and business. The consensus of the academic literature is that high performance work places are perfectly compatible with active unionism and sensible collective bargaining. Nevertheless, Howardâ€™s longstanding desire to reform IR now has a chance of fulfilment, despite the fact that a political storm over the mooted changes is fast gathering.

The reform proposals have two main elements. The first is the amendment of unfair dismissal laws, so as not to apply to enterprises with less than 100 employees.

The second element, is a substantial extension of previous trends, aimed at reducing the role of unions, awards and arbitration, while increasing that of direct contracting between employers and individual employees. In particular:
1. A number of conditions are to be removed from the scope of awards;
2. Minimum conditions will be set by legislation rather than through the awards process;
3. Minimum wages will be set by the Fair Pay Commission, rather than the AIRC;
4. State tribunals will be abolished and replaced by a single national system
5. EBAs as well as AWAs will be assessed by the OEA and both will require substantially less scrutiny.

Most significantly, the reframing of the no disadvantage test will allow AWAs to undercut award minima, effectively making the award protections optional for employers. This key change has attracted little comment to date.

It is difficult to make definitive predictions about the results of particular changes in industrial relations systems. There are a number of reasons for this, including the inherent complexity of employment relationships, the fact that systems differ between jurisdictions and over time in ways that cannot easily be measured and the confounding effect of changes in the labour market, including those associated with macroeconomic cycles.

This point can be illustrated in relation to unfair dismissal laws. A priori arguments are inconclusive Supporters of such laws make the point that, other things equal, the easier it is to dismiss employees, the higher will be the rate of dismissal, and therefore the higher the level of unemployment. Opponents counter that employers will be unwilling to take on staff if they are unable to dismiss those who turn out to be unsatisfactory.

In economic terms, the problem starts with the fact that an employment contract has a lot of implicit terms. In the management literature, itâ€™s often referred to as a psychological contract. Once both parties have committed to the relationship, each has the opportunity to cheat on these commitments. How this works out depends on institutional rules, the state of the labour market and so on. Whatever happens there are going to plenty of people who perceive the outcome as unfair, and plenty of cases where this perception is accurate.

What about the empirical evidence? As often happens, the literature on unfair dismissals starts out with a big publication finding clear-cut results, only to descend into a morass of contradictory findings. A paper by Lazear in 1990 found strong negative correlations between the strength of employment protection laws, proxied by severance pay, and desirable labour market outcomes such as employment and participation rates, hours worked and so on.. But Lazearâ€™s results have not stood the test of time. More recent research suggests that employment protection laws lower the variance of employment and unemployment but have no clear effect on average levels.

In a comparison between neoliberal labour market institutions and alternatives involving either collective bargaining or centralised wage-fixation, one feature is clearly evident. Neoliberal institutions produce substantially more unequal outcomes. This is evident both from comparisons over time and from comparisons between countries. The US, where the labour market has always had most of the main neoliberal characteristics, displays easily the highest inequality. The reforms undertaken in New Zealand and the UK show up clearly in rising levels of inequality, overtaking European countries that were initially less egalitarian. In the US, where declining rates of unionisation and an even more extreme form of neoliberalism have produced a dramatic shift in the distribution of income. Low-income families have experienced almost no income growth since 1970. Wages for workers with high-school education or less have actually fallen, but this has been offset by longer hours of work and increased female participation.

Defenders of neoliberal institutions argue that growth in inequality has been offset by stronger employment growth resulting from more flexible labour markets. The evidence is decidedly mixed. Until the present business cycle, from early 1990s, there was little evidence to support it. For most of the past decade, the English-speaking economies have outperformed those of the EU and Japan. It is too early to judge whether this is merely the outcome of cyclical timing, or whether there is a sustainable gain in employment. Our view, based on the huge current account deficits being run by all the English-speaking countries, is that a severe cyclical correction lies ahead. Only when the macroeconomic imbalances have been resolved will it be possible to make a clear judgement.

Employment relationships are complex, but the outcome of bargaining depends on two factors. The first is the state of the labour market. The second is the balance of bargaining power. Usually, the state of the labour market is more important, but itâ€™s largely determined by exogenous macroeconomic shocks originating not in the labour market but in the financial sector or the world economy. The reforms proposed by the Howard government will tilt the balance strongly in favour of employers. The likely outcome is a substantial increase in inequality of incomes, and in day-to-day relationships within the workplace.

“Opponents counter that employers will be unwilling to take on staff if they are unable to dismiss those who turn out to be unsatisfactory.”

This has always puzzled me, and I have been reluctant to take the issue up as I have never been an employer and hadn’t memorised the laws regarding dismissals. However, I find it strange that people complain about how difficult it is to fire someone if they are unsatisfactory (or somehow “are unable” to do so). Most workplaces have probation periods, so there is an opportunity to find out if the worker is no good. I was of the understanding that if they pass that and then start slacking off, etc, and a couple of warnings doesn’t make them smarten up, they can be fired without hassle. That could be done quickly, over say a week or two, and then they are given notice. Total time from seeing a problem to firing the employee – a month or less. Of course, theft and other serious offences mean dismissal without warnings or notice.

Howard is fighting the last war. These laws are exactly what employers would have wanted when we had a lot of surplus labour in the 70s, 80s and early to mid 90s.

But now we are entering the era of labour shortages, driven by demographics as the baby boomers reach retirement age. Take away the restraining influence of the AIRC, and the free market will deliver wage increases far above what the old award system, even with over award collective bargaining, would deliver.

Meanwhile, if employers are given the freedom to be bastards, some, not many, but some, will be, and this will act as a great boon to union recruitment.

The employers and their political representatives should remember the old saying – beware of what you wish for, because you might just get it.

Dave Ricardo is certainly right about “fighting the last war”. P.Kelly’s “End of Certainty” (invaluable documentation of the 1980’s) reveals the bitter fight Howard had to introduce an alternative “opting out” system of IR into Liberal policy in 1984 (p.120 of my 1992 paperback edition). Nothing much has changed in Howard’s mind.

On the long view, it is notable that the “new province for law and order” flourished only so long as it could muster bipartisan support. Now that a major party has turned against it, the system collapses quickly. The ALP’s lukewarm opposition to the Govt’s. proposals also indicates how uninterested in IR the current generation of ALP policymakers is.

A quick point that caught my eye, before I give it a thorough going over.

The history of centuries shows that under other circumstances not only is the master/servant approach capable of being just, it is well adapted to delivering justice and other valuable things.

So, what the strikes at most showed was a lack of suitability to then current conditions, not an absolute lack of justice in the approach.

That in turn suggests the question of how well adapted the 1907 decision was to our situation, and even to the situation then (what with not having any rough edges smoothed off by experience over time).

I may be able to devote more attention to the rest of this piece later.

1. Tony Healy argued a few weeks back that the 100-employee threshold is meaningless, because big firms can get around it by using labour hire firms. This seems pretty plausible to me, and it’s worth mentioning.

2. It’s become standard practice to invoke empirical work on severence pay to draw conclusions about protections against unfair dismissal. Obviously the two are related, and in practice the current legislation does seem to give incompetent workers a guarrantee of severence pay if they use it. But in principle there is a big difference between obliging an employer to pay out any employee, however inept, and prohibiting an employer from sacking someone unfairly, i.e. for reasons not to do with incompetence or redundancy. As Greg Combet keeps saying, if the Government’s and employers’ aim is just to reduce te red tape and shift the onus proof a little to the dismissed employee, the unions would support reform.

A stytlistic suggestion: I think you should write: ‘Unlike in the period leading up to the introduction of Enterprise Bargaining in 1991…’

A couple of typos: the sentence starting with ‘A priori arguments…’ needs a full stop; the one starting with ‘A paper by Lazear…’ has one full stop too many.

fatfingers, that’s how you’d think it would work, but unfortunately it does not.

There have been cases in the IRC where the commissioner has found the worker to have been fairly fired, but has awarded substantial damages against the employer in any case because of minor procedural technicalities (which, by the way, are unwritten) not being followed by the employer. Many cases are nothing more than a shake-down by the sacked employee.

My approach to unfair dismissal is to outsource to India where possible.

There is much that could be said, but let me settle for a quick correction, re:

Federation saw the entrenchment of Commonwealth powers to establish institutions to conciliate and arbitrate industrial disputes across state borders. The States followed suit with their own dispute settling and wage-fixation tribunals.

The colonies and states actually led the way, with NSW legislating for compulsory arbitration in 1901, beating the Commonwealth by three years, and Victoria experimenting with wages boards from 1896. I think New Zealand was also in front in this direction. More broadly, this case illustrates the often curious and untidy ways in which the Australian Federation really works. The pattern wherein reform first appears at the state level, and is only converted into a national phenomenon after a crucial threshold of provincial support has been established, has repeated time and again over the past 105 years. The insight also tends to illustrate just how radically adventurist Howard’s centralist proposals are, given there is no provincial support at all for his changes at this stage of the play.

On the matter of eliminating workers’ rights to take action about being unfairly dismissed, one would imagine from the number of times this ‘problem’ is identified that it is a major issue … In the NSW Industrial Commission only about 4000 such applications are made each year. Eighty per cent are finalised before conciliation, 10 per cent at conciliation and only 10 per cent after conciliation. Considering there are hundreds of thousands of NSW employers and more than two million workers covered by the NSW system, the NSW experience with unfair dismissal actions doesn’t seem excessively onerous.

Whee! I’ll just make up stories about rape being okay, and tell everyone it’s their responsibility to read every one of those 20 000 decisions, because I have no obligation to back up my ludicrous hyperbole with anything resembling evidence.

“Tony Healy argued a few weeks back that the 100-employee threshold is meaningless, because big firms can get around it by using labour hire firms. This seems pretty plausible to me, and itâ€™s worth mentioning.”

James, another method would be the kind of creative legal restructuring of firms which was attempted by Patricks prior to the waterfront dispute, and James Hardie in relation to the asbestos scandal. The basic idea would be to reorganise the actual large company as an articulated network of small entities which would legally each be the employer of fewer than 100 workers.

Chris, on the correction, I wrote that bit so I’ll respond. It’s more complex than the paragraph suggests, sure, but I wanted to point out that the Federal model increasingly became the template for the States. For instance, Victoria and South Australia (and New Zealand) initially had “Wages Boards” which were quite different in form and concept from the conciliation and arbitration model. Queensland didn’t set up a system of conciliation and arbitration until after Federation.

The big debates over the “new province for law and order” also were simultaneous with, and intertwined with, the debates over Federation, and I think it’s worth bringing out the extent to which this approach was foundational to Australia as a nation.

As an employer I can say that the existing laws to weigh on my mind when I employ people. And when I have sacked unsatisfactory staff I have been fearful of legal retribution.

From what I have read the removal of unfair dismissal laws is likely to have little immediate impact on unemployment. However it is likely to make an early impact in reducing long term unemployment.

The logic goes that it will increase churn. More marginal workers dismissed but more marginal workers recruited. The extra churn will distribute the state of unemployment more equitably so that less people linger at the end of the queue.

My guess is that less long term unemployment will mean less unemployment over all in the medium to long term.

I’m not so sure the Commonwealth model increasingly became the state model Mark, with the exception of the wage fixing principles. In other respects, the provinces often still led the way (workers compensation is another big ready example in the idustrial relations field, but there are myriad smaller inter-jurisdictional dynamics that need to be taken into account if you wish to fully understand the Australian system). The pattern has been replicated in many other areas – unemployment insurance, for example, and more recently in the fields of environmental law.

Incidentally, I think Western Australia also beat the Commonwealth in legislating for compulsory arbitration. The significance of the wages boards, imo, lies in the fact that they contained no explicit sanctions against strikes, a right held dear by the Victorian craft unions (whose local labour hegemony extended to South Australia).

Terje, the problem is that unless the employer-employee relationship is placed totally beyond the rule of law, delinquent ex-employees with a bloody mind and access to a good lawyer will always be able to engage in strategic legal retribution. The exemptions to the unfair dismissal laws fall between two stools. They remove a significant legal protection for many workers who may be genuinely done an injustice, whilst providing no relief to small businesses from vexatious strategic litigation by malcontents and their silks seizing whatever weapon is at hand (OHS, discrimination law, common law, etc.) to tie up the manager in court.

Point taken, Chris, but what I’m really talking about is the conciliation and arbitration model as such – that is to say, the procedures involved in taking jurisdiction over a dispute, according both parties legal standing, and seeking to come to a decision (an award) first through conciliation, and then, if necessary through arbitration – the decision having the force of law.

I do accept the development of the arbitral model was a complex and dynamic process over time.

There is NO way the ordinary worker will be better off – no way at all. The howard lovers criticise union leaders but the bosses are the same only clad in better suits and drive better cars. Cop the greedy, obscene b******s with their pay packets does any sane, decent, responsible person really think that these greedy obscenities will share this booty. Anyhow what makes it a clincher is that the rodent PROMISES!!!!???? (HA-DE-HA-HA) that no worker will be worse off. Some govern. senators say they will not vote for it – Oh yes and pigs will fly,these grovelling, obsequious pollies will soon fall into line. The sooner the better just imagine govern. members with a mind of their own and thinking different ugh! there would be chaos in Canberra. hooroo

cs, most employers I know simply pay out their employees when they sack them. 3 months salary is the going rate for agreeing not to launch a wrongful dismissal claim. Cheaper for the employer. So basing conclusions on the cases that come before the commission is subject to selection bias. Ever heard the phrase “in the shadow of the court”?

Robert, the rape comment was meant as a joke. My direct experience is that the wrongful dismissal laws are stupid, and most employers will tell you the same thing. Snuh brought up the 20,000 cases, not me.

cs, most employers I know simply pay out their employees when they sack them.

Yes, well there are a million stories in the naked city, and you have one of them. To save everyone the trouble of dredging up their own counter-anecdotes, can we be good enough to leave aside personal non-refereeable anecdotes and stick to evidence based arguments?

This is just my personal experience, and the experience of employer friends of mine. I don’t have any reason to suppose that my experience is out of the ordinary, but I also don’t have time to prove it.

Dismiss me if you wish. But dismissing the concerns of your opponents won’t win you the political battle.

It’s easy to dismiss you on the basis of anecdotes my own personal experience, which has entailed representing employers in unfair dismissal cases. This is why we need disinterested evidence if we are to make progress through debate. Absent of that, anon, consider yourself dismissed.

Here’s an example of the type of unwarranted dismissal that will no longer be difficult. Process worker Oanh Nguyen was sacked after becoming pregnant.

The employer and the labour hire firm that provided her tried to argue she hadn’t really been sacked as she was still on the books of the labour hire firm. Commissioner Donna McKenna rejected those claims and awarded Nguyen $10,000.

The important point is that over the past few years state Commissions have been making several judgements like this relating to sharp practices by labour hire firms. South Australia had started tightening up its IR system even further. The labour hire industry was furious over this trend, and also furious that its glib reassurances were no longer carrying any weight with state legislatures.

Thus I think the true aim of the IR reforms is to streamline business for the labour hire industry and, by facilitating that, indirectly to benefit large employers.

I don’t think there’s any genuine interest in small employers or their concerns. I also don’t think it’s realistic to argue that easy sacking encourages the hiring of marginal candidates. Small businesses in particular cannot afford to hire marginal workers, and won’t.

In reply to Dave Ricardo, I will also point out that arguments about labour shortages are weak. First, the workers that will be most affected by the IR reforms are commoditised workers. Second, a great deal of skill shortage lobbying is unsubstantiated and has other agendas.

One of the misleading elements of Howard’s propaganda offensive is to suggest that it would still be illegal to sack Oanh for being pregnant. Yes, it will be, but in the absence of a low-cost and easily available remedy through the IRC, she’ll have to have deep pockets to hire a barrister.

cs, consider yourself similarly dismissed. This from what you referred me to as “fact”:

With these major changes achieved, why then does the government continue to put IR ‘reform’ at the top of its agenda? I think it’s because of the origins of most twenty first century Tories. First and foremost is Howard – son of a petrol-station operator from Earlwood, suburban lawyer and endorsing top-down authority all his life. His 1950s values are mocked by his opponents, but they easily explain his obsession with reducing employee rights. Many of the type of small business people he represents believe that good management is being able to boss around a compliant workforce. They never develop into big-business people. They are forever complaining about having to pay (any) taxes and see little or no role for government regulation of their activities. They want to deal one-on-one with their employees – knowing such a discourse can never be equal. What they detest most bitterly is having to deal with employees collectively because the arrival of a union on the scene tends to even up the discussion. Howard has always hated unions because of his background. Costello may act with a little more sophistication. But as another small-time lawyer he joined the HR Nichols Society and enthusiastically took part in union-busting activities in the 1980s. Many of the government’s other leading lights are from similar stock – ex-small business people with limited horizons or upwardly mobile lawyers. Certainly the ranks of their back-bench are dominated by such small-time thinking. They have appointed as their advisors and senior bureaucrats people of a similar ilk – intelligent ideologues who believe that reducing employee bargaining powers will somehow improve productivity by reducing wages and working conditions.

Fact/opinion ratio close to zero in that article.

Ah, the left: their biases are so evident yet they seem unable to see them for love nor money.

The article is obviously a mix of fact and opinion, the key point being that the Howard changes are not based on any apparent research. The author offers his interpretation of the motivations in the vacuum, which is fair enough. That you have selected his interpretation instead of his facts is thus merely another example of your apparently tendentious debating style anon. A further spell in the sin-bin for you chum.

By all means be suspicious of his intepretation, which is merely to explain the vicious Howard changes by reference to the small-business ideology of the government (it’s a theory, inherently not subject to direct evidence, but neither inconsistent with the facts, nor particularly original, nor implausible; hom, hum – get a grip). But the author’s a former public service department head, and may be reasonably presumed unlikely to be incorrect in his survey of the facts, which is where I suggest you direct your attentiuon, should you wish to constructively return to the field of play.

“But the authorâ€™s a former public service department head, and may be reasonably presumed unlikely to be incorrect in his survey of the facts”

Sure, that’s why he uses such mild and balanced language as “endorsing top-down authority all his life”, “mocked by his opponents”, “obsession with reducing employee rights”, “never develop into big-business people”, “forever complaining about having to pay (any) taxes”, yadda, yadda, yadda.

Most of that _is_ subject to direct evidence, and is, as a matter of fact, false.

There is no point in me addressing those aspects of his article that you deem to be “facts”, when he is clearly so biased and wrong on so many other matters. No doubt his “facts” are carefully selected to buttress his position.

If he is a former public service department head then let’s hope he has been replaced with someone with more balance.

Most of that _is_ subject to direct evidence, and is, as a matter of fact, false.

Look again, because you are wrong. There is, moreover, no law against strong language, and “balance” is a merely a metaphor, and a largely a meaningless in the context you mean to try to apply it.

Mark, incidentally and from memory, I think you’ll find the reasons for Queensland’s apparently anomalous position re legislating for compulsory arbitration in the movement for “One Big Union’ and the history of the AWU.

No, quite the opposite, for you were being postmodern, anon, albeit unwittingly. A dogmatic dedication to applying the metaphor of balance to politics would see half the history of the second world war turned over to the Nazi’s interpretation (with apologies to Goodwin). ‘Balance’, as a decontextualised analytic category, has no inherent virtue when truth is the objective.

Be silly if you like anon. In the meantime, let me occupy all the high ground by being conciliatory and changing the example, for I suppose to be consistent you should support a ‘balanced’ account of the ‘war on terror’ too – handing over half the story to the terrorists’ intepretation? So, you see what i mean? Only a po-mo disregard for ‘truth’ can justify throwing metaphors like ‘balance’ about willy nilly, and this is no substitute for substantive argument. Back to the bench with you.

I was concerned about that AR. But I figured I was ok since it was CS who invoked it first (albeit by way of trying to negate it).

But I am willing to submit to the opinion of the majority on this one (maybe we should go and edit the wiki entry to add a sub-sub-clause to the effect that any attempt to negate Godwin by way of apology is automatically unsuccessful)

I suspect there will soon be a corollary to Godwin’s law, which replaces “Nazi” by “Terrorist”. If I am the first to make this observation, I wish the corollary to henceforth be known as “anon’s corollary”.

Andrew Reynolds says that he sees no reason why increases in inequality are necessarily a bad thing. I wonder if this is because he thinks the current distribution of income (or wealth) is somehow wrong, or that a more unequal distribution would be somehow better, or what?

There are some interesting pointers from the UK on the unfair dismissal provisions.

First, a perfectly respectable economic argument in favour of unfair dismissal laws can be made. That is, to reduce the risk of a claim being made, employers have to be more careful in the selection process. This should lead to better matching, less churning.

Second, when there was an employment size threshold in force in the UK – employers with fewer than 20 employees were exempt – the Equal Opportunities Commission took the UK government to court, and won, on the grounds that the threshold was indirectly discriminatory against women as proportionally more women worked in small businesses. Don’t know my law well enough – could such a case be mounted in Australia?

Finally, where the primary remedy is a cash payout a culture of pursuing vexatious claims develops, as the dismissed employee bears little or no costs in making a claim but stands to win a lump sum payout. It is a classic moral hazard problem. Reinstatement should be made the primary remedy.

I doubt Andrew means that inequality is inherently good. Presumably he would rather see the poor family down the road win $100,000 in the lottery than Kerry Packer. He means that, because economic gain is an incentive to effort, efficiency demands that gains are privatised. Therefore there’s a trade-off between equality and efficiency, and the combination we prefer depends on how risk averse we are.

And that’s the crux. Most people with limited skills and dependents to support want income security and are prepared to sacrifice something for it. The alternative to job security is more generous unemployment insurance and a more caring, less intimidating system for retraining and job placement. But that’s not on offer as far as I can tell.

It seems self-evident to me that if there genuinely is a problem of not being able to sack bad employees (not that this has been well demonstrated), then the solution must surely not being in basically removing all safeguards from bad employers. Surely there is some happy medium?? But that would require negotiation and compromise and consensus, and may involve creating solutions to a problem based on data and analysis, rather than ideology.

The main argument advanced for these increases in the rights of management to unilateraly manage with a minimum of interference from either the state or from trade unions, is that it will increase productivity and decrease unemployment. This latter reason was given by Howard himself reported in both the smh and the Australian. The productivity argument is peddled by Costello. On the unemployment argument, it seems to rest on the assumption that abolition of unfair dismissal laws will increase ‘churn’ at the lower end of the market, thus shortening the time a worker will be out of some kind of employment, even if the employment is low end, low skill and not for very long. Let’s assume for the moment that this is true. What will happen is that the capacity to churn, ie sack people just before the expiry of their new six months probationary period, will put downawrd pressure on wages and benfits. Not a problem I hear our business mates say. But there is.

If you are looking for higher productivity, having a whole lot of unskilled (because there is no incentive to train them) people suddenly sloshing around a labour market, reduces incentives and disciplines on employers in two ways. First, it reduces the incentive to spend money on training and development. Unemployment is not simplya matter of price (ie wages) it is more a matter of the right skills at the right time and place. These changes will be a positive disincentive to raise the bar on skills. Second, it will reduce the pressure on employers to find new ways to get jobs done smarter and more effciently. The need to invest in new technology and systems to make the workplace more efficent ie; productive will be lessened, as the price of labour keeps falling in both real and relative terms. This will result in an overall reduction in productivity in those industries where the cost is simply labour. For example hospitalty small retail, security, and similar industries. The other problem with all this is that the overall risks posed by an economy in which more and more of the requirements for decent living must be privately provided, are increasingly falling on poeple who are more and more exposed to an uncertain labour market, where their capacity to raise the price of their labour is being severly curtailed. What the IPA and Peter Hendy are arguing is that the downward pressure on wage rates should be compensated by increased welfare payments and/or tax reform. I have no problem with reforming the tax rates particulalry for people moving from welfare into work God knows they have had nine years to so something and they haven’t. But the issue of employers effectively seeking a general subsidy through the tax system for the employment of one of their inputs (labour) rasies some very interesting questions, and I haven’t seen much from our beloved neo liberal about these implications. Rent seeking behaviour perhaps?

wilful, on happy mediums, the Workplace Relations Act was amended in 2002 (yes – Howard got some IR stuff through the Senate) to allow the Commission discretion to refuse to hear unfounded or vexatious claims, and also to make it an offence to advise someone to make a claim that is unfounded or vexatious. Since this is inconvenient for the government’s argument, it’s not discussed.

BTW, re Godwins, while I didn’t invoke it (such invocations, as Andrew has pointed out, for thread-ending effects of course being unsuccessful by definition), cursory readers may imagine that I provoked the said invocation, in which case I point out the catch 22 in that the holocaust is the locus classicus for defining postmodernism, which is of course where the argument had turned.

And all the while the neglected, underpaid labourers are continuously becomming increasingly poorer and unhappier. When will our government listen to the voices of our people and equalise our rights? Probably not until they step down from the parliamentary red carpet and into the labour force for a taste of their own medicine.

To Mark Culley – brilliant. I really like your point about the “indirect discrimination” – very good argument.

I just wanted to add that employees should not have to bear the brunt of ignorant employers. It is actually not that difficult to dismiss a poorly performing employee.
1. Make sure they’re aware that they’re not performing properly and tell them why – no, it doesn’t have to be in writing.
2. Make sure you given them a chance to improve.
3. Make sure you tell them that their job’s on the line if they don’t improve.
4. After they’ve had a reasonable time to demonstrate improvement and if they haven’t improved – terminate their employment and give them appropriate notice.

Simple really.

How come small business can manage to get their tax arrangements right but they don’t seem to understand simple employment law.

Also, the economic arguements are irrelevant. Ask yourself – do you really want to live in a country that endorses unfairness – to use John Howard’s words – it’s unAustralian.

James Farrell, I don’t follow the “therefore”. Privatisation of gains could describe any profit share/wages share regime for dividing up economic growth or national income so long as tax rates are not too high. High wages are still private income. So how does privatised gain link to an equality/efficiency trade-off? Or does “equality/efficiency trade-off” just mean a consumption/investment trade-off?

Andrew, I’d prefer to promote churn through wage subsidies than through facilitating dismissals, even if the equilibrium effect was the same.

But on reflection, I think this result must refer to restrictions on mass layoffs rather than individual dismissals – my estimates above suggest that the magnitude of effect for any restriction on individual dismissal would be too small to detect over background noise.

gordon,
In this instance ‘privatisation’ refers not to government / private, but to gains that are private to the individual. So, if I work harder a privatised gain would mean that I get the full benefit of the extra work as opposed to that increase being shared amongst all the firm.

Using James’ terminology, my point was that, in a system of perfect equality there would be no gain that is privatised – i.e. my increased work / capital / thought / improved process would not benefit me any more than it would benefit the person down the road that was not even aware that I did it. Under this system the incentive to work harder, or at all, is greatly diminished – why work when any effort I make I do not see the benefit of?

OTOH, if all gains are full privatised then we are in a complete dog-eat-dog situation. It would also be impossible, as all actions have some externalities – whether positive or negative, so both ends are impossible extremes.

My contention is that there is some optimal level of inequality, where the incentive to work both harder and better is maximised while preserving the ability of society to function generally and not leaving too many people behind as they are unable to keep up.

The article, to me at least, seems to be implying that a decrease in inequality is a desirable outcome. I was just making the point (in what is now a long winded way) that this has not been proven, but is implicit in the article.

Andrew Reynolds, thanks. I was interested in your remark about an optimal level of inequality. I think the belief in such an optimal level is at least as widespread as the belief that reducing inequality is always and in all circumstances good. It is good to get both implicit beliefs out in the open. In present circumstances, I do think that inequality reduction is the more pressing issue. Maybe that makes me a social democrat.

Some writers on economic growth suggest that inequality is a brake on growth, but examples I’ve seen are drawn from early-stage growth, and I’m not aware of estimates of “optimal” or “maximum tolerable” inequality even in this literature – which may reflect only my incomplete aquaintance with it. Recent increases in inequality in developed countries (as illustrated by Prof. Quiggin’s graphs in his 1 June 2005 post on IR and inequality) are of course on everybody’s mind, but again I am not aware of any estimates of optimal inequality in developed countries.

I think a study along those lines would be an interesting exercise – but, unfortunately, not one I would have time for. Maybe PrQ could put one of the (many) minions other commentors seem to think he has onto the question.

The difficulty, IMHO, would be in formulating the question – how would optimal be defined? Economic output (perhaps GDP, adjusted for environmental degradation or improvement, depletion or increase in human capital etc. etc.).

It’s not entirely clear what Andrew means by dog-eat-dog, but I guess it covers several good justifications for compulsory redistribution:

1. Luck as well as effort affects outcomes. Even those who make a big effort can lose their job or come unstuck in a variety of other ways. Of course people can insure voluntarily against income loss, but this is a market that will never work for everybody, due to information asymmetries. So a universal scheme (i.e. the wefare state) is more efficient.

2. Children in poverty, through no fault of their own, are unlikely to realise their potential. They can’t borrow against future output, so it makes sense for each generation to subsidise the children of their poor peers.

3. Absolute poverty breeds crime. Crime, as well a range of other ilegal but wasteful rent-seeking activities, is a rational response for people poor labour market prospects and no other means of support.

4. Marked relative poverty inspires irrational anti-social behaviour, which also has external costs. People who feel abandoned by society will not develop a normal sense of social obligation. They will show less courtesy, and may neglect to flush toilets.

These are all justifications from the point of view of rational individual self-interest. That is, they’re not drawn from any ethical philosophy that promotes altruism as inherently good. But they may be consistent with such philosophies. They are awkward for libertarians of the Nozick brand.

James,
I would agree with all of your points bar point 1. Luck does affect outcomes, but the information assymetries can be dealt with – this is a possible use for the unions. Creating a huge bureaucracy to deal with information assymetries is probably not the way to go.
Point 2 I agree with wholeheartedly, but I am not sure an Education Department is the best way to deal with this.
Points 3 and 4 I also agree with – but both of these flow from your point 1. Deal with the luck and information problems and 3 and 4 become much less of a problem.

James Farrell, another consequence of dog-eat-dog is likely to be further inequality, as families accumulate wealth across generations. This is likely also to reduce social mobility, as bridges to advancement like education come to be seen as privileges rather than rights. I think we are already seeing a reduction in mobility in parallel with increases in inequality, at least in UK and USA (The Independent reported a LSE study by Blanden, Gregg and Machin on this in April).